Paul Goddard, Risk and Assurance Partner at Scrutton Bland helps to define corporate culture, and explains where an assurance provider can assist.
Many businesses are looking at or have started to evaluate their culture. This isn’t as a result of new legislation, but rather a recognition that a healthy culture is integral to their bottom lines. Where organisations fail, it is often the case for any subsequent review to identify poor culture as a primary cause and in most corporate scandals certain cultural weaknesses will be found. This is often a result of having the wrong quality of leadership at the top, or by individuals not acting in accordance with the organisation’s ethics and values. A harmful culture will often be detrimental to the longterm health of a company and its employees.
Failures in in corporate culture can be very visible to customers, shareholders and the wider community and can seriously dilute confidence and trust. Culture can be the difference between a business that succeeds and thrives and one that does not fulfil its potential or fails under pressure.
Boards and senior management must take the lead in defining and analysing their organisational culture by promoting the values and the behaviours they wish to see across their organisations.
Boards need assurance that a culture of learning from mistakes, rewarding the right behaviour, and systems and processes that produce the desired behaviours are embedded across their organisations. A statement of values is not sufficient on its own; boards need to know that those promoted values, often agreed as part of a strategic planning process, are the same as actual values on the ground.
Providing assurance to boards around the actual values in play is just part of the picture, as culture is not merely the articulation of an organisation’s values. Values need to be translated, to be communicated, and to have an impact on everyday behaviours to be able to influence the way business is done.
Who owns the corporate culture of an organisation is an issue that boards and senior management need to consider. The board should articulate the expectations around values and behaviours and should seek assurance that staff at all levels are effectively following the values that the board deem are conducive to a healthy organisational culture.
Boards should try to embed a culture which distinguishes between simple mistakes/errors, risky behaviours, and recklessness. In other words: a culture that promotes an atmosphere of trust but makes clear where the line is drawn between acceptable and unacceptable behaviour.
We will all have our own interpretation of what the term ‘culture’ means. It is commonly interpreted as “the way we do things around here
”. The term itself can be off-putting for some. An organisation’s culture develops organically over time and is influenced by external factors and pressures as well as the ways that internal systems, processes and roles inter-relate. Problems can occur when that interaction between external drivers, aspects of the organisation’s internal system, including incentives and individual behaviours become significantly misaligned. So perhaps the question to ask is: what can be done to improve the control environment at the point of interaction between these elements?
An effective reporting culture depends on, among other things, how the organisation handles blame and punishment. A ‘no-blame’ culture is not usually feasible nor desirable. Most business leaders will require some level of accountability when a mishap occurs, but they also want to ensure staff aren’t scapegoated for things that were not their fault. In an environment where the culture includes accountability, the culpability line is more clearly drawn and is therefore not the same as a ‘no-blame’ culture.
The importance of culture is readily apparent when things go wrong. When two or more organisations merge, distinct cultures collide and employees can receive mixed signals, until the point when the new management team takes the time to carefully diagnose and redefine the many business processes throughout the organisation.
How can you assess your own culture?
- staff surveys
- whistleblowing activity
- governance structures
- staff grievance data
- exit interviews
- management of customer complaints
- statements of values
- pay, reward and incentive structures
- supplier feedback
Every business will have its own identity and this is important to retain as it usually goes to the heart of what the organisation stands for, and will remain as staff come and go. A harmful culture may develop where teams remain unchanged for significant periods, where silos or cliques develop or individuals in senior positions demonstrate poor behaviour to colleagues where this is not challenged. These scenarios can often be difficult to identify internally as the culture evolves too slowly to take note of what is happening.
Scrutton Bland has a wealth of experience in advising clients on risk and assurance and regularly works with clients to support them in reviewing their culture and operating structure.